February 2014 Business Outlook Survey

Manufacturing activity was reduced in February, according to firms responding to
this month’s Business Outlook Survey. The survey’s broadest indicators for
general activity, new orders, and shipments suggest moderate declines this
month, but comments suggested that much of the weakness was attributable to the
severe winter weather that affected the region during the survey period. Firms
continued to add to their payrolls, but average work hours fell. Despite the
weakness in current indicators, many of the survey's indicators of future
activity improved this month, reflecting optimism about continued growth over
the next six months.

Indicators Suggest Reduced Activity This Month

The survey’s broadest measure of manufacturing conditions, the diffusion index
of current activity, decreased from a reading of 9.4 in January to -6.3 this
month (see Chart). This was the first negative reading of the index in nine
months. The current shipments and new orders indexes also weakened this month.
The demand for manufactured goods, as measured by the current new orders index,
decreased from a reading of 5.1 to -5.2 this month. Shipments also fell, with
its index falling 22 points to a reading of -9.9. Firms reported longer
delivery times and an increase in inventories.

Labor market indicators were mixed this month. The current employment index
remained positive for the eighth consecutive month but declined 5 points from
January. More firms (21 percent) reported increases in employment than reported
decreases (16 percent). Firms reported reduced work hours; however, the average
workweek index remained negative for the second consecutive month, with more
than one-fifth of the firms reducing work hours.

Cost increases were slightly less widespread this month among reporting firms:
The prices paid index decreased 5 points, to 14.2. But with respect to firms’
own manufactured goods, price increases were slightly more widespread this
month: The prices received index increased 3 points, to 7.6.

First Quarter Production Will Increase Modestly

In supplemental questions this month, firms were asked about the state of
underlying demand for their manufactured goods (excluding seasonal effects)
since the beginning of the year (see Special Questions). Over 45 percent of the
firms characterized the demand as increasing, while 19 percent indicated it was
decreasing. The largest percentage (43 percent) indicated that demand had
increased modestly. Firms were also asked to provide estimates of production
growth for the first quarter. Significantly more firms indicated that production
would increase in the first quarter (55 percent) than indicated it would
decrease (28 percent), and the average growth for the reporting firms was 0.5
percent. Over half of the firms indicated that production growth would represent
an acceleration compared with the fourth quarter.

Firms also remain optimistic about the growth of overall manufacturing activity
for the next six months. This month, the future general activity index increased
6 points, from a relatively high reading of 34.4 in January, to 40.2 (see Chart). Indexes for future new orders and shipments also remained at relatively
high levels, with nearly half of the firms expecting increases in both over the
next six months. The future employment index was virtually unchanged at 16.5,
with nearly 27 percent of the firms expecting increased employment over the next
six months.

Summary

The February Business Outlook Survey suggests that activity in the region’s
manufacturing sector decreased moderately this month, which was mostly
attributable to the winter storms that blanketed much of the region during the
first few weeks of the month. Firms reported decreases in overall activity, new
orders, shipments, and average work hours in February. But overall, employment
among the firms continued to increase, and firms expect production to rise
modestly during the first quarter. The survey’s future activity indexes indicate
that firms expect continued growth over the next six months.

Special Questions (February 2014)

1. Since the beginning of the year, how would you characterize the underlying demand for your manufactured products? Exclude any purely seasonal effect.

Increase significantly

2.7%

Increase modestly

42.7%

Total increase

45.4%

No change

34.7%

Decrease modestly

13.3%

Decrease significantly

5.4%

Total decrease

18.7%

2. What change, if any, do you anticipate in your firm's production during the first
quarter of 2014 compared with the fourth quarter of last year?

Increase of more than 4%

14.6%

Increase of 2-4%

18.7%

Increase of less than 2%

21.4%

Total increase

54.7%

No change

14.7%

Decrease of less than 2%

4.1%

Decrease of 2-4%

9.3%

Decrease of more than 4%

14.6%

Total decrease

28.0%

Average expected growth for all firms: 0.5%
Average expected growth for firms attributing growth to seasonal factors*: -0.2%

3. Would this represent an acceleration or deceleration from the fourth quarter?

Significant acceleration

12.0%

Acceleration:
53.3%

Some acceleration

41.3%

No change

14.7%

Some deceleration

25.3%

Deceleration:
29.3%

Significant deceleration

4.0%

*Calculation based on responses to separate question about whether expected change was due to
seasonal factors, change in business conditions, or other factors.
Percentages may not add up to 100 percent because not all firms answered all questions.